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Bullish Investor Sentiments on the rise at GSE

By Toma IMIRHE

An air of cautious optimism prevailed at the end of last week on the trading floor of the Ghana Stock Exchange as signs of the bull market’s return became clearer despite a 1% fall in the GSE’s all-share index during the week. Even though the fall lowered the year-to-date yield to 3.73% down from 4.78% a week earlier, stockbrokers and investors alike took heart from the fact that last week six stocks appreciated in price compared to just one which saw its price fall. The GSE all-share index’s fall last week was only because the price loser, Ecobank Transnational Incorporated (ETI) which shed 6.67% off its share price, is the second highest capitalized stock listed on Ghana’s bourse.

Because the all-share index tracks the weighted average price change on the stockmarket, the most heavily capitalized stocks therefore have an inordinately large effect on the index as a whole.

Bullish sentiments as at the close of last week’s trading were driven by the fact that there were six price gainers and only one price loser last week, compared with five price gainers and three price losers in the previous week when the all-share index climbed by 5.37% to reach a four month high.

Last week’s price gainers were led by Anglogold Ashanti which gained 13.33%, Ghana Commercial Bank (9.20%) and CAL Bank (5.26%). Standard Chartered Bank, Ecobank Ghana and Guinness Ghana Breweries all also achieved marginal stock price gains last week.

However, even bullish stockbrokers and investors admit that there is no certainty that the GSE has at last turned the corner after nearly one and a half years of bearish trading which resulted in a record fall in the all-share index of 48.68% for 2009, which was nearly double the erstwhile biggest average fall in the index for one calendar year, of 28.8% suffered in 2005. Analysts are quick to point out that the sharp 5.37% one week rise in the index achieved a fortnight ago was largely propelled by a 15.38% rise in one heavily capitalized stock – the same ETI whose subsequent 6.67% fall last week saw the entire index decline by 1%. Equity analysts insist that as long as weekly average price movements are still heavily influenced by those of one or two heavily capitalized stocks, the index can move either way and there is no certainty that this would be upwards rather than downwards.

Nevertheless, the market fundamentals favour a return of the bull which is desperately needed by equity investors who have suffered a battering since the second half of 2008. The sharp fall in most equity prices since then have lowered price earnings ratios back to their traditional long term averages of between eight and twelve and the strong profits and dividend payouts that have started to be announced for 2009 by many listed companies should boost investor confidence too.

Besides, money market instruments, the alternative to equities for financial portfolio investors are offering lower yields than any time in the past two years, thus making equity investments increasingly competitive. Also with the cedi more or less stabilized against the US dollar, foreign portfolio investors, who in the past have driven bull markets the most, are starting to consider the GSE favourably again since they no longer stand to make the heavy currency translation losses they suffered during the cedi’s sharp depreciation in 2008 and the first half of 2009.

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